Simon Hughes has insisted the Lib Dems could win an election "landslide" in the future as he tried to end media questions about his private life.
Mr Hughes said he had handled media pressure with courage
Speaking at the launch of his leadership campaign, he said the party could "win big" and should not worry about recent opinion poll falls.
The launch comes after he admitted having relationships with men, despite previously denying he was gay.
He is battling Sir Menzies Campbell and Chris Huhne for the leadership.
A YouGov internet poll for the Daily Telegraph shows support for the Lib Dems is down by 5% to 13% since December.
The survey of 2,000 people was conducted before Mr Hughes' admissions, but after ex-leadership contender Mark Oaten quit the Lib Dem front bench when his affair with a male prostitute was revealed.
Mr Hughes played down the poll, predicting his party would win more seats in May's local council elections once its new leader was in place.
"Temporarily problems come to all parties, the public are much more concerned about long term solutions," he said at the formal launch of his campaign in Manchester.
Mr Hughes has slipped from odds-on favourite at the bookmakers to win the contest to 4/1 outsider.
But he insisted people were more interested in politicians honestly presenting policies than in their private lives.
Mr Hughes said the Lib Dems should be ambitious and aim at new territory rather than simply thinking about holding on to what they had gained, he argued.
"I do not believe that the 1906 [election] result was the last ever Liberal landslide," he said.
"I believe that the Liberal Democrats have huge potential for winning big too in the future."
The Lib Dems had won their best results in generations and should now aim at a far better showing in 2009 or 2010.
The 54-year-old highlighted his commitment to the party, his campaigning efforts around the country, and his opposition to successive "authoritarian governments".
Mr Hughes argued that Britain had never needed a liberal party so much as it faced threats to individual freedom and personal privacy, he said.
He said the Lib Dems had been right to propose a higher rate of tax for higher earners at the last election while cutting the tax burden for people on low incomes.
Fairness had to go beyond taxation and into education and healthcare, he said.
Mr Hughes vowed never to sell out Lib Dem principles for a "cheap headline".
"Everyone knows that under my leadership there would be no question of entering a coalition for the sake of a ministerial position," he said.
"Everyone knows that the first pre-condition of any partnership would be a properly representative Parliament."
The North Southwark and Bermondsey MP said the Labour government was running out of steam.
And the Tory "honeymoon" would end when differences became clear between David Cameron's words, the views of his colleagues and what the Tories actually did.
Mr Hughes said it was a day for "politics and policy" rather than revisiting his admission to having relationships with both men and women in the past.
Asked about his recent denial when asked if he was gay, he said: "I gave a reply that wasn't untrue but was clearly misleading and I apologise."
Mr Hughes also said the way he had handled the media storm around his admission showed "he was not afraid of dealing with things" - a quality "which might be a leadership criterion".